'Scarcity' helps with spending

I've often said that money problems are the result of issues that people haven't addressed or don't even know they have.

Michelle Singletary

I've often said that money problems are the result of issues that people haven't addressed or don't even know they have.

One of those issues is scarcity - having less than you feel you need.

And that's why for this month's Color of Money Book Club, I've selected "Scarcity: Why Having Too Little Means So Much" by Sendhil Mullainathan and Eldar Shafir (Times Books, $28). Mullainathan is a professor of economics at Harvard University, and Shafir is a professor of psychology and public affairs at Princeton University.

Theirs is an academic approach that is easily accessible. "Scarcity" isn't beach reading. But it's intriguing if you want to understand the significance and consequences of scarcity.

As the authors point out, there are times when scarcity can be a good thing. When you have less money or time, it may result in a "focus dividend" or heightened productivity. Scarcity can also result in "tunneling," which is when you focus on one thing so much that you neglect something else.

"Focus is a positive: Scarcity focuses on what seems, at that moment, to matter most. Tunneling is not: Scarcity leads us to tunnel and neglect other, possibly more important, things," Mullainathan and Shafir write.

Mullainathan and Shafir contend that applying the science of scarcity to poverty might help change people's attitudes about the poor. Their work could help people empathize more with the poor.

"When we think of the poor, we naturally think of a shortage of money," Mullainathan and Shafir say. "When we think of the busy, or the lonely, we think of a shortage of time, or of friends. But our results suggest that scarcity of all varieties also leads to a shortage of bandwidth."

Bandwidth in this context is mental capacity. When money is scarce, your thoughts can become overwhelmed with your financial struggles, making it hard to make better choices. "We are emphatically not saying that poor people have less bandwidth," they write. "Quite the opposite. We are saying that all people, if they were poor, would have less effective bandwidth."

Their discussion about poverty elevates it from stereotypes that the poor are just lazy or irresponsible. So when we address poverty, understanding how the poor may be thinking can result in more effective anti-poverty programs. "Why not look at the structure of the programs rather than the failings of the clients?" they ask. "Why not design programs structured to be more fault tolerant?" And asking the questions isn't a substitute for personal responsibility, the professors add.

I'll be hosting a live online discussion about "Scarcity" at 9 a.m. Dec. 5 at washingtonpost.com/discussions. Shafir will join me to answer your questions. For a chance to win a copy of this month's selection, send an email to colorofmoney@washpost.com with your name and address.

Contact Michelle Singletary, a financial columnist at The Washington Post, at michelle.singletary@washpost.com.